BUSINESS Despite Roadblocks, Optical Steps Up to Meet Today’s Challenges By Staff Monday, March 13, 2017 12:30 AM Click here to download a PDF of Navigating 2017. Trying to describe the business outlook for the optical industry in 2017, phrases like “cautious optimism” come to mind. Economic indicators show that optical made incremental progress in 2016, with sales in most product categories up slightly over the previous year. The latest VisionWatch Consumer Barometer, covering the 12-month period ending December 2016, reflects a modest 1.5 percent overall increase in revenues for vision care products and services in the U.S. compared to the prior year period. The total vision care market, as defined by The Vision Council’s VisionWatch survey, reached $40.36 billion in the 12-month period, and includes dollars spent at retail at all retail types at any retail location and spent on the sale of either spectacle lenses (including Rx Sun), frames, contact lenses, plano sunglasses, OTC readers or revenue earned by refractive surgery or eye examinations. With the exception of refractive surgery, each one of those categories saw increases in the 12-month period versus the same period a year ago. So far, that modest progress appears to be continuing, according to anecdotal evidence based on feedback from optical retailers, wholesalers and ECPs gathered by Vision Monday. Several retailers even reported an uptick in foot traffic and sales following the outcome of a particularly contentious and divisive presidential election year. It seemed as if consumers were relieved that the uncertainty surrounding the changeover to a new presidential administration was over. Optical’s optimism is being further fueled by the gathering momentum on Wall Street. Despite some trepidation, the stock market has defied expectations from some analysts who predicted a downturn before the inauguration in January. In fact, the stock market has taken off like never before—the Dow Jones Industrial average reached 20,000 for the first time ever on Jan. 25. According to a report in The Wall Street Journal, “the Federal Reserve’s apparent confidence in economic growth and investors’ hopes that the Trump administration would spur that growth drove the achievement. The early March increase to 21,000 points from 20,000 also marked the index’s fastest 1,000-point gain ever.” Still there are many factors that could roil the U.S. economy in the months ahead, such as changes to international trade agreements that could drive up the cost of imports sharply, increase domestic manufacturing costs and reduce consumer spending. On the positive side, employers may benefit from tax incentives for businesses, leading to job creation and growth opportunities. The optical economy is also in flux. Changes in state regulations for vision care providers and consumer access to vision care insurance could significantly impact consumer behavior. Ongoing consolidation and mergers at all levels of the industry, the rising influence of e-commerce and social media and the increasing availability of telemedicine are just a few of the factors that could affect consumer buying patterns in the near term. To take optical’s pulse, VM asked about prospects for 2017, consumer mood and buying habits, the effects of cultural and political changes and potential business opportunities. Last year started off on an excellent note. It appeared by mid-year that we would exceed projections of a 10 percent same store revenue increase, but a slowdown in the last quarter leading up to the election, and a fire that destroyed one of our locations (on Thanksgiving weekend) reduced revenue below expectations in the fourth quarter. So by Dec. 31, we ended up just below projections. 2017 is off to a better than expected start (the warm weather helps!), and based on minimum wage increases and inflationary increases, we are expecting reduced store sales (i.e., revenue from three stores instead of four) to actually exceed last year’s revenue totals. With the reduction in overhead, we’re actually way ahead of net projections. Elections in a presidential year almost always deflate moods and result in decreased spending habits. Once it’s over, however, people tend to move on with their lives. This election was like none we’ve seen and the early projection from my seat is that it will be good for eyewear buyers. Impacts of the Election Those who are excited by the outcome of the election will spend because they believe that the economy will improve and enhance their lot in life so they will treat themselves to eyewear that represents this point of view. Those who are disheartened by the results will recognize that they have to live with them and will justify a feel-good enhancement of their facial accessories. Either position presents an opportunity for the astute ECP. Of course, how we will be affected is the question. Uncertainty is never good for the markets or the economy (unless you’re heavily invested in precious metals). Protests, foreign aggression, terrorism all play a part to one degree or another. One day it’s business as usual, the next.... Acquisitions are an opportunity that may come from the consolidation of the industry and the desire of small practitioners to cash out. Challenges come from the very real fact that the future of the industry is not as predictable as it once was. The effect of the internet, insurance proliferation, consolidation of industry giants are all uncertain factors that require very careful strategies when it comes to growth of this type. It may be the smarter approach to just lean back and watch for now. When it comes to our marketing efforts, we’re launching a new e-commerce site to give patients an easier way to order contacts and basic eyewear packages, and we’re promoting a vision club plan to attract patients without coverage. We’re also enhancing lens offerings to give presbyopic patients more of a selection for particular use. And we’re dedicating more resources to local efforts and the smart use of social media to generate a buzz that drives business to our door. Personalized campaigns on our own social media channels, linked to networks in the community with followings help us spread the word that we have specialty products like Chanel, Cartier, Gucci, electronic eyewear products, etc. The idea is to promote the company as an authority on what’s new so we can be seen as the expert on the easy stuff, which is what we sell more of than anything else. In 2016, we had a very positive year at Cherry Optical, Inc. Our investments in quality laboratory opticians, sales representatives and technology have begun showing a very nice return. The challenge and opportunity of being a “non-vision plan” and independent laboratory remained, but there are still plenty of eyecare professionals looking for a high-quality laboratory to take care of their private-pay business. We expect a similar pattern to continue in 2017. We’ve made additional investments in equipment, technology and people as part of our plan for continued, sustainable growth. We believe that if we continue to focus on improving what we do that we will be rewarded with additional business. Trying to over-analyze the industry or the marketplace doesn’t accomplish much. Listening to customers, improving operations, training employees and reinvesting in ourselves will be the most important part of maintaining growth. I expect 2017 to be a successful year for Cherry Optical, Inc. The Rise of Disposable Income The economy, better quality wages, and maybe a bit of fashion trends may affect the market more than anything. When consumers have money (or more money) they are more willing to spend, and when it remains “fashionable” to wear eyewear, we have the ability to capitalize on this trend to grow our slice of the health care/fashion industry. Additionally, consumers having more disposable income means they’ll be enjoying life; usually doing so outside—which also provides potential for sunwear. As far as the business outlook goes, I think there could be some extremely positive things, especially for U.S. manufacturing and independent, U.S.-based optical laboratories. The skill set needed at a modern optical laboratory is more advanced than ever before. R&D, reinvestment and skilled-labor development are a must. Having an administration that favors a pro-growth, lower-tax policy can only help. Will the world change in 365 days? Absolutely not. But if changes are put in place that strongly encourage reinvestment, we’ll all be on the track for great success. Let’s also consider how changes in trade regulations may affect the major lens manufacturers that have invested heavily in outsourcing to Mexico, Thailand and other countries. These manufacturers have taken advantage of lower labor costs and reduced regulation from agencies such as OSHA and EPA. But having a president that puts America first could bring production of their lenses back to the U.S. It would raise production costs, but also create jobs. That could have a major impact on the future of U.S. optical labs. By constantly becoming a better optical laboratory we have infinite potential to grow. We say here that our goal isn’t “total world domination.” We leave that to the “big guys.” We’re simply looking to be the best optical laboratory possible. As we work toward achieving that goal, we’ll achieve a lot of positive things. The “by far” biggest opportunity to grow our business and the entire eyecare industry is increased awareness of the value and importance of routine eye examinations. Last year was a year of ups and downs. From the industry side, many ECPs are tired of large monopolizing companies, so more and more buyers are favoring independent brands, such as Brooklyn Spectacles, that has a local brand story together with frames of good quality, at a price point that’s accessible among consumers, and offers great profit margin to business owners. However, with the quick expansion of a discount eyewear brand from online to offline, opening many brick-and-mortar stores in the most popular areas, that has definitely created some waves and unfair competitions. I believe for 2017, the competition will be even fiercer. The big will get bigger, we will see more merger and buy-outs as companies are holding hands to stay competitive. So we, the local independent brands and shops, must continue to bring more and better product offerings, better lenses, faster technology, and more consistent social media marketing to stay in touch with the needs of your customers. Consumer Spending Is Down I think consumers are buying less these year. The mood in the U.S. hasn’t been great due to political reasons; and the U.S. dollar is very strong right now, which definitely hampers the tourists shopping behavior. Brooklyn Spectacles’ flagship store is located on Bedford Ave., in Williamsburg, Brooklyn—the equivalent of SoHo in Manhattan, where a large percentage of our foot-traffic is from tourism. We definitely saw fewer tourists in 2016 compared to 2105. When there’s still so much unknown when it comes to tax reform and business reform, many people are holding back from making big purchases or big business decisions. I foresee things will come to a more clear picture after tax season, one way or the other. For Brooklyn Spectacles, the biggest opportunity is potentially opening more stores that could further highlight the brand; and international markets. The biggest challenge is to get more ECPs to support independent brands as opposed to monopolized brands that are being made cheaply for an unworthy price! As far as products goes, we’re making more frames using top quality acetate and hardware from Italy and Japan. We’re paying close attention to customers’ demand in eyewear fashion; we believe colorful palettes and combination frames are the trend for 2017. Every press mention, every like, every media exposure, and every celebrity who are wearing our frame now is due to them really liking the frame/brand for what it is. Not to brag, but some of them are: Ted Allen, Paul Marcarelli, and I personally helped Courtney Cox in selecting her pair at our flagship store. I truly believe that the best marketing is from the ground-up—make beautiful products and sell for as a reasonable price as possible—word of mouth referrals and building a fan-base organically is the best way. Business for us was very good in 2016 and we had strong organic growth in most of our businesses and product categories. We start our fiscal year on Dec. 1 and our first quarter of 2017 has been a little softer than Q1 of 2016 but I am cautiously optimistic for 2017. Throughout the first three quarters of 2016, I thought consumers were very optimistic, we experienced a significant slowdown in October and November. It may have been due to political uncertainty or just a normal slow- down after several strong quarters. Growing Market Share The overall market seems very flat, so if you want to grow above low single digit numbers you are going to need to take market share from your competitors. Hopefully, we will continue to see growth in exams driven by the Think About Your Eyes initiative. It’s more productive for everyone if we can grow the market. As for new products, every Walman division is continually working to advance products, services and technologies across the eyecare spectrum in support of the optical industry, eyecare practices and eyecare patients alike. Here are some examples. Our division X-Cel Specialty Contacts announced the expansion of our Atlantis Scleral product line with two new lens options: Atlantis Scleral Multifocal and Atlantis Scleral 3D-Vault with Limbal Control Technology. The enhancements allow for superior vision and customization for the patient while making it even easier for practitioners to fit patients with Atlantis products. Also, ADO Practice Solutions is expanding their growth-focused and cost-savings programs to give eyecare practices the much-needed edge to succeed in the competitive marketplace. DONE4YOU is a personalized ECP marketing program and the PEAK Performance Program is an advanced benchmarking service. Both of these comprehensive services help practices uncover new patient opportunities and grow their business. As far as our marketing efforts go, we’ve found content marketing, social media and e-mail marketing are the strongest methods to share the Walman story. Specifically, you’ll see Walman Optical, our lab division, continue to share their strong focus on enhancing the patient experience through ECPs’ independent power of choice. The expansive and unbiased list of products, programs and education Walman Optical offers empowers ECPs to decide what’s best for their patients. Business was fantastic for us in 2016 showing above industry average for growth and we expect store over store growth to continue into 2017. Believe it or not, managed care has helped our business to grow, you may ask why? It promotes annual eye exams, and our clients want to use their benefits. They want to feel like they are getting some value for a deduction of premiums out of their paychecks. We continue to deliver top notch service and world class products, so it is a recipe for growth We never worry about anything that we can’t control. We stay the course and provide an amazing experience no matter what. Acquisitions and new store openings are the biggest opportunities for our team. We have a great foundation with a beautiful building that we call our headquarters. This is the hub of the entire operation. It has not even come close to meeting its full expectation of production and therefore we will continue to seek great opportunities to continue to open doors. Importance of Staff + New Products Over the last few years, we have been very fortunate to have built a team that just simply works hard and gets it done. They believe in the direction we are going in and they and want to grow as well. As for products, we brought in some different products this year as it relates to color deficiencies and this has actually worked. When I say it has worked, I mean for the patient, and to see parents see their children in full color for the first time, or to see a leaf on a tree is amazing. We also continue to work hard on our Made In America collection of eyewear, which has been made here for over 20 years—Norman Childs eyewear. And we continue to work the value segment as well with chromos eyewear. For every frame sold, we provide an eye exam, frames and lenses to children in need right here in the city of Pittsburgh. Our ad campaign with our celebrity following has been the longest running ad in the history of our company. We use high end magazines, billboards, some TV, and just try to have some fun with it. Each year, we review annual sales in our optical shop to determine where we can look to grow our business. This past year, our optical team worked together to achieve higher bottom line growth within our current patient base. We have identified two areas of focus, including growing an “eyewear wardrobe” and “task eyewear.” Each member of our optical team wears a variety of glasses. This grew from a love of all the new fashion frames now available. We get very excited with new styles, and enjoy wearing them. Through heavy discounts we have all grown our personal eyewear wardrobes. We noticed our patients commenting on the fact that every time they visit our practice we all have on a new frame style, or a color to coordinate with our outfits. We have worked with individual reps who provide us with great discounts on frames, and paired them with lenses from CLEARi lab so that opticians, the front desk staff and our technicians can afford their own wardrobe. Multiple Pairs Boost Profits The patients have become so accustomed to seeing us wearing newer styles and colors that there is a natural progression to talk about having multiple pairs of glasses. We remind people that they own several pair of shoes—at least a black pair and a brown pair, and that they would never wear tennis shoes with a suit or a dress. Eyewear is like that, too. It is not only a medical device, it’s part of your wardrobe, worn on your most recognizable feature, your face! In addition to fashion, technology is contributing to our bottom line. A majority of our sales involve progressive lens. We are hearing from many of our patients that regular progressives are just not cutting it for those sitting in front of a computer screen at work, which today is everyone. They want greater intermediate distance correction. We are expanding our sales in the area of task lenses or “computer” eyewear. Once they start wearing these lenses they are hooked. Now when they are considering new glasses it’s two pair; one pair for dress, one pair for the computer. And for those patients who are in their 20s through mid 40s the Eyezen+ lens, which eases eye strain at the computer and reading, is a great choice. So from our love of fashion eyewear we have seen our sales increase in multiple pair sales. We have also focused on mid-range priced fashion sunglasses. Kate Spade, Bobby Brown and Ray-Ban, just to name a few, are high fashion and great quality, at an affordable price. Coupling these frames with packaged lenses makes an easier add-on sale for prescription sunglasses. All of this in our quest to expand our patients’ eyewear fashion wardrobe. We are a new practice that opened in 2014. In 2016 we saw a 50 percent increase over 2015. So far in 2017, we are up 19 percent over last year and I think we should continue to increase at about that rate this year. With the uncertainty at the end of last year we’ve seen a decrease in our customers’ willingness to spend. This year, people are more eager to spend money on “luxury items” such as plano goggles and sunglasses, as well as more lens treatment options. We are located in somewhat conservative area, but we continue to see increases in spending. Given the gains in the stock market, I think consumer confidence in our area is pretty high right now. We have yet to see any indicators of “fear to spend.” Expanding Services, Diversifying Product Our biggest opportunity is the introduction of a second exam lane which will allow for more patients to be seen in an eight-hour day. The new lane features state-of-the-art equipment, including a new Topcon Maestro OCT and fundus camera. We also introduced Costa sunglasses which should perform well throughout the summer, particularly with tourists. And we’ve added State frames to diversify our product offering. We will be incorporating digital media platforms throughout the office, including video displays. Plus we’ve added music, both inside and outside, to enhance the overall shopping and customer experience. Business in 2016 was about as we expected—nothing too dramatic in terms of same store sales. For 2017, we expect that there may be a bit more of a lift now that the “election cloud” is past and we are now into a new presidential term. Hopefully the emphasis will be on jobs and economic growth. In addition, with the opening of two new locations and the relocation of another, we will see a lift from this activity as well. We definitely saw the pace of eyeglass orders slow down during the months between August and the first part of December. Again, I am going to attribute part of this to the election cycle and a wait and see attitude. Just look at the stock market and how it is now responding to the new administration. I think that the business climate is positive at this time and as long as employment remains in a growth pattern we can expect that our business will follow this trend. Greater Efficiencies to Meet Growing Demands While there are opportunities for growth there are also challenges. Much of our business is derived by managing relationships: patients, employers, and vision managed care. It’s not a simple thing anymore to sell glasses, contacts and eye exams. With this relationship dynamic, we, the provider, are asked to do much more today: accept deeper discounts, report more pathology, be aware that we simply cannot expect to be in network when new locations are added, accept the fact that managed vision care is offering our patients “on-line” buying opportunities, and deal with hundreds of employer plans with one managed vision care plan, all without disrupting the relationship dynamic. However, where there are challenges there are opportunities for us to become experts in managing these relationships as seamlessly as possible, thereby maintaining and growing the share of the vision-need pie. We learn to become more efficient by reflecting on our business model and performing at a higher level. As for new products, there are a number of technology introductions. Some are new and some are a continual rollout. First, we will be continuing to implement visual acuity systems replacing our old projectors and screens. Next, we have been working closely with Optos to continue to introduce their ultra-widefield, high resolution digital retinal imaging systems to other markets within our company. Our recent TV branding campaign that we ran regarding our free school program resonated with such positive results that our plan is now to add and continue to “pepper” in such ads along with our standard call to action commercials. Also, we have been getting great results in all markets with our digital click through-rates. Over the past several years we have taken the opportunity to try different forms of digital advertising and really going after the area that has the best results. Significant investments in proven leadership and implementing process improvement procedures in 2016 continue to excite our current customer base. We were able to demonstrate steady quality and service level improvements that set us up for sustainable growth in 2017. Competition in the wholesale optical industry is strong, but we’re excited to see ample opportunities to expand, especially as an independent lab. Wholesale customers are seeking out vendors who can offer quality products at competitive prices; but service level and convenience are becoming more and more important. We strive to provide ECP customers with exceptional support and offer online ordering tools to make buying easy. Capability is another critical consideration, as customers seek out full-service labs to build long-term partnerships. We’ve added another Leybold AR coater to expand capacity to meet demands; and continual innovations in new products keep us ahead of the curve. Our customers have confidence in our ability to process a wide range of complex jobs, which encourages loyalty and contributes to our sales growth. The $49 billion Essilor and Luxottica merger is definitely the optical news of the year. We believe it reinforced why so many ECPs value working with independently owned and operated optical labs, and are excited to continue filling this need. Our hope is that we can earn the business of many ECPs looking for independent alternatives in 2017. ROMCO Super-Extended Range Polycarbonate Stock Lenses and our new PolyShade85TM sun lenses are two products with massive potential in 2017. Products That Differentiate The biggest challenge to growing sales for these particular products is exposure and messaging the benefits. Now more than ever, individual ECPs need to keep up with big-box retailers offering low price loss leaders; and our products are designed to help them stay competitive. We make proprietary digital free-form prescription lenses, specialty frames and accessories for smart glasses including Microsoft HoloLens, Epson Moverio BT-300, Intel Recon Jet, and the most popular virtual reality devices like Oculus Rift and HTC Vive. We have launched UnderRx frame collection designed to accommodate VR goggles without compromising fashion and comfort. Our product portfolio for wearables is designed to allow the 2/3 of the populations who require some sort of vision correction to fully experience smart glasses. While most of our sales for this product category are currently direct to consumer through our technology partners, the ECP channel opportunity is growing. Business in our office grew in 2016, as compared to 2015. We have established a growth goal of 8 percent for 2017 and we optimistically expect to exceed it. If the first six weeks of the new Trump administration are an indicator, we’d say that the future looks promising. However, we believe our destiny depends on how well we are able to control those things within the four walls of our office, which we have direct control over, no matter what the cultural and political climate might end up being in 2017. We had tremendous growth in Transitions products in 2016. We must continue to ‘prescribe,’ and not just recommend, products that are not only cutting edge, but also products that protect the health of our patients’ eyes for the future. We are continually striving to meet patient expectations in eyecare and products and searching for ways to make our brand stand out from the competition. As Millennials take over for Baby Boomers in spending power, our biggest challenge is being appealing to both generations concerning their buying habits and the value they expect without sacrificing our standards in care, service and products. Creating Cross-Generational Appeal Our goal this year is to reach 70–plus percent Transitions use by our patient base. Also, we are discussing methods of gaining market share used by online sellers and how we might incorporate this into our business model. Service is something we are always tweaking so that we can improve on our patient experience. We believe strongly that patient care and service are number one and as patient expectations and experience are met, our sales goal will take care of itself. Our marketing is primarily internal marketing. Referral by satisfied patients has been our best marketing tool and we will continue to do this. We are adapting our electronic communication methods of marketing, enabling us to maintain market share of the younger generations as well as conventional methods to keep up with our senior patients. Last year was our first full year of operation, and it went better than we had hoped. In our business, we expect 2017 to be busier, with the combination of previous and new patients. From January to September, we were tracking very well but then the mood shifted drastically in October. Results for October and the first half of November were poor, as number of patients dropped off and the higher end patient became more scarce. As soon as the election was over, we saw a big uptick in patient volume and dollars per transaction. January and February 2017 have been terrific months and we expect growth from 2016 numbers every month this year. Our biggest opportunity is to be able to accommodate more patients without sacrificing patient experience. Staffing is our biggest challenge—we want to add staff who can make customers feel like they are the only patient here. Branding Through Social Media Our second biggest opportunity is to continue to grow our optical by adding frame lines that are capturing trends and are high quality and good values for their respective price points. We curate our frame selection, so space is always a bit limited. Over the past year, we have added frame lines consistent with our commitment to excellence. Von Arkel Switzerland has been a wonderful addition to our product mix, offering extremely high quality products with a luxurious and lightweight feel. Instagram and Facebook have been inexpensive and effective ways to get our brand message out. Instagram has probably been the best social medium for us. It allows us to share some of our style and personality before people walk through our door. You can follow us @springfield_family_vision on Instagram.